What Is the Amount of the Annual Interest Tax Shield

question 78

Multiple Choice

What is the amount of the annual interest tax shield for a firm with $5 million in debt that pays 10% interest if the firm is in the 40% tax bracket? (Use value in the dollar.)

• A)$100,000
• B)$200,000
• C)$300,000
• D)$400,000

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Definitions:

Exit Mechanisms

Strategies or methods used by investors, entrepreneurs, or organizations to withdraw their stake from an investment or business venture.

Union Wage Advantage

The higher wages earned by unionized workers compared to their non-union counterparts due to collective bargaining.

Misallocation

The inefficient distribution of resources, often leading to missed opportunities or wasted potential.

Labor

Labor refers to the human effort, both physical and mental, used in the production of goods and services.